Bank economists foresee 'half-hearted' recovery

By Dick Uliano, CNN


WASHINGTON (CNN) -- Bank economists are forecasting moderate economic growth for the remainder of this year and all of next year, bringing the unemployment rate down "painfully slowly" to 8.5% by the end of 2011.

An American Bankers Association panel said Wednesday it's very likely the economy will avoid a "double-dip" recession but the ABA's Economic Advisory Committee Chairman -- Stuart Hoffman, chief economist of PNC Financial Services, Inc. -- said economic recovery in the United States will be "half-speed or half-hearted" over the next several years.

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Hoffman told a news conference, he expects the U.S. economy will remain in a "rehab period" for the next several years, "as it works its way to fuller health."

The economists, who briefed the Federal Reserve Board of Governors on their findings on Tuesday, believe the economy, as measured by GDP, will grow about 3% this year and next year creating about 2.2 million jobs this year and another 2.5 million jobs in 2011.

Keitaro Matsuda, chief economist for Union Bank N.A. told CNN that, "the pattern or trend is encouraging but the pace is definitely discouraging." Matsuda added that the slow pace of job creation, "might be somewhat frustrating to many people."

The panel predicted that the nation's jobless rate, at 9.7% in May, would fall by just three tenths of a percent by year's end.

While forecasting modest but steady economic growth, the ABA said it expected inflation to remain in check this year and even next year when the group unanimously agrees the Federal Reserve will begin raising interest rates by as much as 1.5% by the end of 2011.

While banks have tightened the reins on lending since the economic crisis began, the ABA panel expects lending will be increased to both businesses and consumers this year and more rapidly next year.

The group's economic forecast calls for only a limited impact on the U.S. economy from the European debt crisis.

The bank economists listed a number of factors preventing quick and robust economic recovery. "Commercial real estate has not turned around and is a drag," Hoffman said. He also blamed financial weaknesses in state and local governments and modest consumer spending.

"The kind of economic growth we're expecting to see is not the typical kind of growth we usually see after a deep recession," according to Matsuda.

The bank economists also said that 2011 tax hikes on upper-income Americans would play a role in keeping economic and jobs growth modest. To top of page

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